By Star-Bulletin Staff

Saturday, April 4, 1998

Bishop Estate critics
expect bombshell in
IRS ruling

Trustees lose an attempt to kill a subpoena
for data from an IRS audit

By Rick Daysog, Star-Bulletin

The state Supreme Court's decision forcing the Bishop Estate to hand over records it filed with the Internal Revenue Service could lead to the removal of one or more of the estate's trustees, an estate critic says.

Beadie Kanahele Dawson, attorney for Na Pua a Ke Ali'i Pauahi, which represents more than 2,000 Kamehameha Schools students, alumni and faculty, said the IRS documents could show whether individual trustees of the multibillion dollar estate engaged in self-dealing or breached their fiduciary duties.

"This is an absolute bombshell that the trustees didn't want the attorney general to have," Dawson said.

"There will be pertinent information that comes to light."

Friday, the Supreme Court denied an appeal by Bishop Estate lawyers seeking to overturn a subpoena issued by state Attorney General Margery Bronster for the IRS documents.

The subpoena -- which was approved by Circuit Judge Kevin Chang in January -- was issued as part of Bronster's investigation into possible wrongdoings by trustees of the Bishop Estate.

The IRS documents, known as information document requests, could show whether individual trustees received benefits and perks at the expense of the nonprofit charitable trust.

The IRS had requested the data in its two-year audit of the estate, which operates the Kamehameha Schools.

Bronster yesterday praised the high court's decision, saying she expects the estate to comply with the ruling within the next day or two.

If it doesn't, the state could ask the courts to find the trustees in contempt, Bronster said. She noted that the order went into effect yesterday afternoon.

"I think all of the merits were on our side," Bronster said during an impromptu news conference at Wilson Community Park in Kahala.

The estate's attorneys had opposed the subpoena on the grounds that the IRS documents were partly privileged material. They argued Bronster was engaged in a huge "fishing expedition" that would force the estate to hand over some 20,000 pages of documents.

William McCorriston, attorney for the estate, said yesterday he would not act on the Supreme Court's decision until consulting with the estate's trustees.

But he noted that the estate has several options: It could ask the high court to reconsider its decision, it can file a writ with the U.S. Supreme Court to overturn the decision, or it could seek remedies in federal court here.

McCorriston declined to say what the federal court remedies could be.

Bronster said the estate has engaged in considerable foot-dragging, costing the state and the trust considerable time and money. She said further delay would hurt the students and beneficiaries of the trust.

Bronster said the state first subpoenaed the IRS documents in October but the estate moved to quash the subpoena in December.

In January, Judge Chang ordered the estate to provide the documents by Feb. 6 under a protective order preserving their confidentiality. Chang later extended the date to Feb. 20.

Hours before the February deadline, the estate appealed Chang's ruling with the Supreme Court.

The ruling yesterday was made by five Circuit judges acting as substitutes for the five Supreme Court justices, who had recused themselves last month from hearing Bishop Estate matters.

Bronster in January asked the justices to recuse themselves to avoid the appearance of impropriety. The state is investigating the trustee selection process and may have to subpoena individual justices who selected the current Bishop Estate trustees.

"I think this puts the investigation back on track," said Randall Roth, local trust-law expert and co-author of the "Broken Trust" article that prompted the state to open its investigation.

"The fact that trustees fought so hard on this issue would suggest that there's something in there that is damaging."

Holt says hes
reimbursed Bishop Estate
in full

By Rick Daysog, Star-Bulletin

Former state Sen. Milton Holt said he "fully intended to pay back" Kamehameha Schools/Bishop Estate when he charged some $21,000 on the estate's credit cards at local strip bars and Las Vegas casinos.

In an exclusive interview with the Star-Bulletin, Holt discussed the controversy surrounding his personal use of estate funds and commented on recent investigations by the state Campaign Spending Commission and the FBI into financing irregularities by his re-election campaigns. It is the first time he has publicly spoken about the issues.

Holt, a special-projects officer at Bishop Estate, said he has recently paid back all $21,000 that he charged on the estate's Bank of Hawaii Visa cards during the past six years.

The credit card expenses -- which include some $2,500 in charges at local strip bars -- were disclosed in court filings in January by state Attorney General Margery Bronster.

Bronster is investigating allegations of financial mismanagement and breaches of fiduciary duties by trustees of the estimated $10 billion trust.

Holt said the credit card expenses were personal in nature and not related to business.

"The whole time I have fully intended to pay every penny back, which I have done," Holt said. "Everything has been paid back."

But Holt conceded that he received an undisclosed "salary adjustment" from the estate some time ago which helped him pay back the costs.

He also admitted that he charged an additional $880 on a Bishop Estate credit card at the Saigon Passion strip club as recently as January.

He said he has since reimbursed the estate for the January expense, which was not disclosed in the state's court filings.

According to Holt, the credit card expenses were a target of the Internal Revenue Service's wide-ranging audit of the estate. The IRS is looking into whether trustees and employees personally benefited at the expense of the estate.

Throughout the controversy Holt said he received solid support from his family members and Bishop Estate's trustees. But he conceded that the turmoilhas made it difficult for his children.

"Never a day goes by without me picking up the paper and reading about me," Holt said. "It's kind of tough on the kids."

When asked whether he felt remorse about the credit card expenditures, Holt, a Kamehameha Schools graduate, said there is a lot of "misunderstanding" surrounding his use of estate credit cards.

"It's a wash, right?" he said, refering to his reimbursement to the estate.

Founded in 1884 by the will of Princess Bernice Pauahi Bishop, the estate is a nonprofit charitable trust whose mission is to educate children of Hawaiian ancestry. Funds raised by the estate are used to finance Kamehameha Schools.

Toni Lee, president of Na Pua a Ke Ali'i Pauahi, which has criticized trustees for their stewardship of the estate and Kamehameha Schools, said she was appalled by Holt's comments.

Lee -- whose organization includes more than 2,000 students, alumni and staffers -- said that Holt is setting a bad example for students and that his statements are indicative of the "arrogance" of the estate's trustees.

Lee likened Holt's actions to those of trustee Lokelani Lindsey, who several years ago used estate employees to obtain zoning variances for her Punaluu home. Lindsey paid back the estate last year, without admitting wrongdoing.

"How does one even think about using the princess' money in that fashion?" Lee said.

"How does one justify using a business credit card for personal use, especially for going to hostess bars and gambling?"

Holt's candid admissions came after he was interviewed for an hour and a half yesterday by the state attorney general's office.

Holt and his lawyer, Reginald Minn, met with senior Deputy Attorney General Lawrence Goya to go over the credit card charges.

For Holt, yesterday's events capped a tumultuous two-week period in which the Campaign Spending Commission and the FBI opened separate investigations into the former lawmaker's campaign financing practices.

Bob Watada, executive director of the commission, said it found that more than $43,000 was missing from Holt's campaign fund.

A follow-up report found that Holt, who lost his Senate seat in the 1996 Democratic primary to Suzanne Chun Oakland, also borrowed $9,500 from his campaign fund in 1996 and misreported another $30,000 in payments to a public-relations firm.

Those discrepancies attracted the attention of the FBI, which has subpoenaed some campaign documents, according to estate sources.

Holt, meanwhile, said his campaign treasurer, Frank Kudo, has reconciled most of the expenditures, which he attributed largely to accounting errors.

Holt declined to discuss the loans he took from the campaign, saying it was a personal matter.

Kim says mayor wrong on Harbor Court

Mayor Jeremy Harris is twisting the facts when he says the city is not owed $10.45 million by the developers of the Harbor Court condominium project, Councilwoman Donna Mercado Kim said.

"Once again he doesn't know what he's talking about," Kim said Friday when told that Harris accused her of misinterpreting information given to her.

Kim said attorneys from the Office of Council Services agree with her. Harris said the corporation counsel's office has told him he's right.

"It's more spin-doctoring rhetoric," she said. "He needs to make excuses why this administration has not done its job."

On Thursday, Kim said Harbor Court owed the city roughly $10.4 million by July 1997, based on a Council resolution that required Harbor Court Developers to buy the fee-simple interest in all 120 condominium units.

She said a letter sent by Housing Director Bob Agres supports her interpretation.

"We note that Resolution 94-55 required your (Harbor Court Developers) purchase of any unsold fees at the end of three years based on a total purchase price of $14,000,000 for 120 fees in the first year, increased by 8.5 percent in the subsequent second and 8.5 percent in the subsequent third years," Agres wrote in the letter to Harbor Court representative G. Scott McCormack.

A 1994 Council Housing Committee report on the issue stated similarly, "Any leased fee interest not sold at the end of the three-year period will be purchased by Harbor Court Developers at the three-year price."

Harris said Kim and the news media are misinterpreting the sentences because the emphasis in both is on the prices involved, not on a requirement.

"The issue is the price," he said.

The developer simply had an option to purchase all 200 of the fee interests but was not required to do so, the mayor said.

"According to the corporation counsel, the city is not owed the $10 million," he said.

State to study mastectomy insurance

Many women avoid breast cancer screening because they fear disfigurement from a mastectomy.

Breast cancer, affecting one out of eight women, requires a significant number of victims to undergo an amputation of one or both breasts.

If Hawaii mandated reconstructive surgery, the assurance could encourage women to get their exams to prevent the disease, state officials say.

After three years of debating the issue, the state House adopted a resolution yesterday to study the social and economic impact of requiring insurance coverage for reconstructive surgery after a mastectomy.

"Because of the way we value breasts in our society, women don't often come forward to get their breast exam. They are afraid of lifetime disfigurement," said Ina Percival, director of the Hawaii State Commission on the Status of Women.

"In many cases the most effective treatment for breast cancer is a mastectomy. It's a severe procedure women have to go through."

The idea of the study is to examine the benefits of requiring complete reconstructive surgery, said Sarah Kuzmanoff, a state Health Department official. Complete reconstruction includes the breast, the nipple and connective tissue under the arm.

"In order to make a state health care change, you're required to do a study first," she said.

"The assumption is it increases costs if women go undetected. If we can do a better job of encouraging women to come in as early as possible and prevent the cancer, it will reduce costs."

Currently, insurance coverage differs. Some insurers cover the reconstructive surgery, some don't, and some cover parts of reconstructive surgery, said Stacy Evensen, a spokeswoman for the Hawaii Medical Service Association.